Will Canada avoid a recession? Here’s what economists say

Canada's economy contracted in the second quarter of the year. In the third quarter, economists are expecting a bit of a bounceback.

While U.S. President Donald Trump’s trade war continues to hit the Canadian economy, economists say Canada might just narrowly avoid a recession.

Economists define a recession as two consecutive quarters of an economy contracting. In the second quarter of 2025, Canada’s tariff-hit economy shrank by 1.6 per cent.

In the third quarter, which ends in September, economists are expecting a bit of a bounceback.

The Canadian Chamber of Commerce’s Business Development Lab is projecting that Canada’s economy will grow by 1.7 per cent in the third quarter. While that is soft growth, it would mean that Canada technically avoids a recession.

After five straight quarters of Canadian business confidence plummeting, the Chamber of Commerce predicts “business confidence held flat in Q3.”

However, the report added that this was cause for “caution rather than renewed optimism.”

The resilience in the Canadian economy was led by smaller firms, which have been able to pivot quickly to make their exports CUSMA-compliant in order to avoid tariffs, the report added.

“Micro-exporters recorded the fastest gains in U.S. sales, helping to offset muted optimism among larger firms,” the report said.